Fixed Income
Quotes for Ukraine’s newly-restructured sovereign Eurobonds saw a notable correction last week amid growing fears that the country is at risk of losing IMF support. IMF representative Jerome Vacher expressed worries that Ukraine could adopt a 2016 budget that does not meet the objectives of the IMF program. There is a major disagreement between the Finance Ministry (MinFin) and political forces in Parliament regarding what kind of tax system the budget should be built on. MinFin is proposing a tough tax reform bill aimed at keeping the budget under control with an IMF-approved deficit of 3.7% of GDP. Meanwhile, the tax reform backed by the major parties in Parliament (including President Poroshenko’s BPP faction) looks somewhat populist and could lead to a budget deficit of 10% of GDP. The country’s benchmark 10-year sovereign bond dropped by 3.5% to 90.0/90.8 (9.3%/9.2%) and the shortest issue, Ukraine-19s, fell 3.3% to 94.0/94.8 (9.7%/9.4%). The so-called VRI (value recovery instrume
